Nevada Supreme Court upholds tax initiative

CARSON CITY, Nev. (AP) -- The Nevada Supreme Court thrust the discussion about taxes onto state lawmakers Thursday, upholding a business tax proposal backed by the state teachers union and other labor groups and sending it to the 2013 Legislature.

In a unanimous ruling, justices overturned a lower court judge and rejected arguments by Committee to Protect Nevada Jobs, a pro-business organization, that the initiative to impose a business margin tax was flawed.

"We are thrilled that the court saw fit not to thwart the clear will of the people and did so in a unanimous decision," said Gary Peck, executive director of the Nevada State Education Association.

John LaGatta, chairman of Committee to Protection Nevada Jobs, a pro-business group that opposed the initiative in court, said the group disagrees with the high court's opinion and "will continue to fight this proposed legislation."

Critics argued that a required 200-word description of what the measure would do was misleading because it doesn't explain that the measure itself would not guarantee more money for education.

During oral arguments in December, Josh Hicks, attorney for the committee, argued that even if enacted, state lawmakers could decide to reduce general fund support for the school account and spend that money elsewhere. Voters should be told about the possibility that money for schools might not increase at all, he said.

But Francis Flaherty, representing the NSEA, called that argument "raw speculation," and countered that initiative backers aren't required to disclose every conceivable scenario of what future legislators might do. He added that those types of detailed arguments for and against the measure would be included on the ballot if it gets to voters in November 2014.

Justices agreed, saying the description — the explanation voters see when asked to sign the petition — is not required to be all inclusive.

"Given the 200-word limit imposed on these descriptions, they cannot constitutionally be required to explain every detail or effect that an initiative may have," the opinion said. "This is especially true where, as here, the actual text of the initiative is 25 pages in length.

"To reach a different conclusion would significantly hinder the people's power to legislate by initiative and effectively bar all but the simplest ballot measures."

The proposal seeks to impose a 2 percent margins tax on businesses grossing more than $1 million. Backers have said it would raise $800 million a year and the petition says those taxes would be earmarked for the Distributive School Account, used for per-pupil funding.

Peck said the goal is to fix Nevada's "broken tax structure" and provide a stable revenue stream for K-12 education "to give every kid an opportunity to learn."

LaGatta countered it would impose a tax burden on businesses still struggling in the wake of the Great Recession in a state that has led the nation in unemployment since May 2010.

"Since this tax applies even to businesses that are losing money, we greatly fear that the application of this tax will cause even more businesses to close and cause even more Nevadans to lose their jobs," he said.

The initiative is based on a similar measure floated by Democrats late in the 2011 session that died for lack of support.

Supporters gathered about 150,000 signatures — more than twice the number needed — to keep the measure alive and send it to the Legislature that convenes Monday. Lawmakers have 40 days to act. If they reject it or take no action, it automatically goes to voters in November 2014.

Legislators could also come up with their own alternative proposal to appear on next year's ballot.

"Now that the court has ruled, we certainly hope and expect that the Legislature will support and enact the initiative," Peck said. "If they come up with an alternative, we hope it is a real fix and not just another Band-Aid solution."

Democrats control both the Senate and Assembly but lack a two-thirds margin needed to pass tax increases. Incoming Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, has said a discussion on Nevada's tax structure will begin early in the session, though Democrats have stopped short of advocating for new taxes.

Republican Gov. Brian Sandoval, midway through his first term, has said he will oppose any new taxes.

Assemblyman Pat Hickey, GOP minority leader, said Republicans welcome the tax discussion.

"It's not impossible in this session or the next that there could be something that resulted in restructuring Nevada's tax system," the Reno Republican said. "But that doesn't necessarily mean it will only be done at the ballot box.

"It should more appropriately be done by the Legislature and I think Republicans are certainly coming prepared to have that discussion."

Senate Minority Leader Michael Roberson, R-Las Vegas, said he, too, welcomes the debate on "whether implementing an income tax helps attract new businesses and industries to Nevada, or whether it effectively shuts down such efforts."

Personal income tax is banned in Nevada by the state Constitution, and Roberson likened the initiative to "income-based taxes on our citizens." Nevada also does not have a corporate income tax.

"For that reason, I strongly oppose this income tax proposal," Roberson said.